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Nicholas Spiro

Singapore Foreign Minister Vivian Balakrishnan does not mince his words. In an interview with Reuters on March 23, he said Iran’s effective closure of the Strait of Hormuz was, “in a sense, an Asian crisis”. Many industry experts agree with him.
Before the war in Iran erupted, China, India, Japan and South Korea accounted for 75 per cent of oil and 59 per cent of liquefied natural gas (LNG) flows through the strait. In a report on March 6, Nomura said Asia was the “epicentre of the energy security shock” and faced “potential stagflation if disruptions persist beyond a month”.
As the war enters its second month, the one thing that is certain is that physical shortages of oil, gas and other strategic commodities will persist long after the conflict winds down as supply chain disruptions linger and inventories are rebuilt.
Asia’s acute vulnerability to the shock has put the region’s power-hungry data centre market under scrutiny. In 2024-25, the Asia-Pacific accounted for about 30 per cent of data centre operational capacity worldwide and nearly a quarter of the facilities currently under construction. Transaction volumes were higher than those in the professionally managed rental housing and hotel sectors, according to MSCI data.
Yet unlike traditional types of commercial property, development and investment in data centres is less about the amount of capital deployed and more about sourcing the electricity needed to power rapid growth. A unique blend of real estate, infrastructure and technology, the data centre sector “needs affordable, reliable and clean energy to scale to its full potential”, Deloitte said.
The energy crisis has amplified vulnerabilities in the sector, putting the economics of building and financing data centres under sharp scrutiny. Power generation is a particular concern in Asia, given that several countries rely on imported fuel to supply electricity. Nomura notes that nearly 30 per cent of South Korea’s power generation is gas-fired, with the Middle East accounting for almost a quarter of its LNG imports.

If the conflict drags on for months and energy prices keep rising, the US$770 billion in investment needed to add a further 24 gigawatts of data centre capacity in the Asia-Pacific during the next five years could be imperilled.
Asian data centres, which are at an earlier stage of the growth cycle, are less exposed to risks associated with the boom in artificial intelligence (AI), but concerns over energy security in the region could lead to a repricing of risk in the sector.
However, a closer look at the idiosyncrasies of Asia’s energy markets suggests data centres are less vulnerable than they might appear. The electricity sector in some of the economies most reliant on oil and gas imports from the Gulf is relatively insulated from the shock. In India, gas accounts for less than 3 per cent of power generation.
In China, coal accounts for more than 50 per cent of power generation while electricity prices are heavily regulated. Moreover, China is rapidly adding new power capacity through renewable sources, whose growth met 84 per cent of electricity demand growth in 2024.




“Oil, natural gas and electricity are three different commodities with three different supply chains, three different price dynamics and three very different relationships to the Middle East. Conflating them – treating energy as one fungible commodity – leads to bad analysis,” wrote James Wang, a general partner at venture capital firm Creative Ventures.
Another source of resilience in Asia’s data centre market is developers’ and operators’ increasingly sophisticated power sourcing strategies. To cope with high and volatile prices as well as more stringent sustainability requirements, leading operators have entered into power purchase agreements with clean energy providers.
These contracts, which allow operators to bypass national grids, provide power at a fixed price for as long as 20-25 years. This provides “a revenue anchor supporting the bankability of new generation and storage projects, helping accelerate the deployment of additional electricity supply”, Deloitte said.
Pritesh Swamy, head of research and advisory in the Asia-Pacific data centre group at Cushman & Wakefield, said the energy shock will “enhance the sophistication of power sourcing strategies”, helping the sector find ways around natural resource-related constraints.


Fierce leasing demand in Asia’s data centre market adds to the resilience of the sector. Strong commitments from so-called hyperscalers – leading cloud service providers that offer computing resources on a global scale – have pushed down the vacancy rate in the sector to just 7 per cent amid tight supply. According to JLL, 78 per cent of the new supply across the region in the next two years is already pre-leased.
Furthermore, while there has been a shift in development activity towards countries where construction costs are lower, operational capacity and development pipelines are concentrated in five countries, two of which – Japan and Australia – are among those with the highest construction costs amid scarce land availability and intense competition for power-ready urban sites.
“If it was all about power and construction costs, there would be far fewer data centres in Asia”, Swamy said. The state of digital development, the quality of urban infrastructure, capital market liquidity and transparency, geopolitical considerations and the availability of AI-ready data centres are key determinants of leasing and investment activity in the region.
The global energy shock presents a new challenge for data centres. However, the nuances of Asia’s energy markets, innovative power sourcing strategies and the region’s vast digital infrastructure requirements underpin the sector’s resilience.


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Asia’s unique energy markets, power sourcing strategies and vast digital infrastructure requirements underpin the sector’s resilience


Asia’s unique energy markets, power sourcing strategies and vast digital infrastructure requirements underpin the sector’s resilience.


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Column

Why Asia’s data centres are insulated from Iran energy shock

.css-1c6uqr6{color:inherit;font-weight:inherit;font-size:inherit;font-family:inherit;line-height:inherit;overflow-wrap:break-word;}Asia’s unique energy markets, power sourcing strategies and vast digital infrastructure requirements underpin the sector’s resilience

Asia’s unique energy markets, power sourcing strategies and vast digital infrastructure requirements underpin the sector’s resilience